Credit Scores
What is the FICO Credit score range? What does a higher credit score indicate?
300 (poor) - 850 (excellent); Credit/trust worthiness & Responsibility based on your credit history
What is a credit report?
A detailed summary of your credit history
A counseling company offers to “settle your debt fast” but charges large fees. What type of counseling is this likely?
For-Profit
What does bankruptcy do to debt?
Eliminates, reduces, and/or restructures debt
What is the most important factor? What percentage does it carry in your score?
Payment History & 35%
DAILY DOUBLE
It changes over time; updated monthly.
What type of services do Non-profit Credit Counseling offer? Why should this be someone's first step in debt management?
Budgeting help, Debt management plans, Financial education workshops, Housing & Student loan counseling -- Typically free
What is an essential asset?
An asset that you are able to keep to prevent you from loss of income/stability.
What does credit utilization refer to? What is a good utilization percentage?
Amount of credit used & 30%
How many credit bureaus are there? Why are there multiple?
3 - To provide multiple data sources/check accuracy
What is a potential advantage of the debt avalanche method?
It saves more money in interest over time.
What happens to debt in Chapter 7 bankruptcy?
Liquidates (sells off) assets to pay off debt
Hard VS Soft Inquiries
What is an example of each, and how do these effect your credit scores?
Hard: Someone else checks your credit (car dealer, credit card issuer, lender, etc.) & decreases credit score
Soft: You check your credit score & does not effect your score
Why should you check your reports at least annually?
To catch errors or fraud
DAILY DOUBLE
Make the minimum payments on all debts.
What debts are not eligible for forgiveness through bankruptcy?
Most student loans, child support, tax debts, & court fines.
How does a good credit score add to your future opportunity?
Lower interest rates
Easier approvals (for rental applications, loan requests, and some job applications)
Higher credit limits
Better insurance rates
Negotiating power
What are the 5 Cs? Who uses them and why are they important?
Character, Capacity, Capital, Collateral, Conditions
Banks/Lenders use the 5 Cs to evaluate the risk of a borrower.
Why might someone choose snowball over avalanche?
Motivation and psychological wins, even though it will cost more in interest over time.
Explain how bankruptcy can offer a "fresh financial start".
Acts like a broken bone. The process will hurt now, but over time (~10 years) with good financial habits, your score will heal and the bankruptcy will revolve off of your report.